DENVER—Microsoft and its partners must change the way they have traditionally done business to accommodate software as a service, Microsoft CEO Steve Ballmer told attendees at its annual Worldwide Partner Conference here July 10.

Ballmer started his keynote—to the tune of "Let's Get It Started"—by going into the audience and shaking hands up and down the aisle, smiling and pointing at familiar faces, just like a famous singer or American Idol contestant would do during a performance.

Then, taking the stage, Ballmer told the audience that they energized him, "so thank you, thank you, thank you. The favorite thing I get to do in my job is to meet with our partners."

Getting down to business, Ballmer said that there is a new set of innovations that affects the fundamental model of computation and the user interface, and that this affects everyone, from customers to partners and developers.

"Microsoft is building new business capabilities, and our partners also need to build new capabilities along with us," he said, pointing out that the company, and the industry, had faced these challenges before.

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The new model for user interface and computation involves both new business and new technology capabilities, coming together as software plus services, he said.

Click here to read why Microsoft is pushing to enlist partner support for its Dynamics Live CRM service.

The future of software and services will bring together the best of the desktop, the enterprise, the Web and devices.

The desktop will bring a rich user experience, offline access and personal integration, while the enterprise brings management, compliance and security, Web click-to-run, search, and collaboration built-in; and devices bring mobility and new device form factors.

Ballmer said he is often asked about the future of user experience and if the world will go to all thin clients and all HTML, but "that is not right, I was going to say it's nonsense. Mobile devices are getting richer, not smaller and thinner. We want all the benefits of rich and enterprise and of our devices," he said, referencing the company's Silverlight platform, which started the software-plus-services transition.

As to what will happen on the back end, Ballmer said there will be differentiation across servers, hosted servers and services. There will be on-premises servers, which bring control and ownership, strategic capabilities and customization; hosted servers, which has a beneficial infrastructure TCO; and services, which bring efficiencies of scale, scale on demand and advanced manageability. "But this differentiation and move will take time," he said.

There also needs to be a new services platform, and Microsoft is in the process of building out a services-based infrastructure from the get-go, with storage in the cloud, Ballmer said, referring to its Live strategy.

"This is an ambitious strategy for us, but it's very important. We will offer a set of services—personal services like Windows Live, Office Live, Live Search, Virtual Earth and the like; and business services like Exchange hosted services, managed communication and collaboration services, Office Live Small Business Dynamics Live CRM, and Titan," he said.

To read about Microsoft's plan to release Windows Server 2008, SQL Server 2008 and Visual Studio 2008 next February, click here.

Developer services will involve Windows Live Cloud infrastructure services and Silverlight streaming, as well as BizTalk services. Service enablers for Web sites include Windows Server, SQL Server, Visual Studio and AdCenter, while service enablers for click-to-run clients are ActiveX, AJAX, Silverlight, .Net and Win32Softgrid, he said

As to what things will look like for Microsoft's partners going forward, Ballmer said software licensing will continue, and there will be growing online advertising, transactions and services, as well as human services.

"Microsoft will lead in driving this new generation of computing and user interfaces, and you will all benefit. We will make sure it's a successful one for all our customers, partners and Microsoft itself," he said, noting that the opportunities for lots of customization exist on top of all its recently released products.

In his call to action, Ballmer said there are personal productivity services that can be customized and embedded by partners, there are business services they can host, customize, add-on or resell, or they can write applications for Titan.

Microsoft also has a set of developer services that partners can write applications for or develop using its tools like Silverlight.

"The software and services era is now," Ballmer said. "We are writing new software, we will be delivering betas and design previews, and the time to engage is now."

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